Stability is as important as freer trade,
Supachai tells Asian business leaders

A good outcome in the current WTO negotiations
will be vital both for increasing trade and for modernizing global
economic management, Director-General Supachai Panitchpakdi told a
conference, BusinessWeek magazine’s 14th Annual Asia Leadership Forum,
in Bangkok on 14 June 2005. This is what he said:

‘A stable environment can be as important as lowering barriers’
The WTO at Ten: What is at Stake for Asia

Ladies and Gentlemen

I am deeply honoured to have been invited to speak to this Annual Asia
Leadership Forum. The WTO is an organization of governments. Its
negotiations, its agreements and its dispute rulings sometimes seem to
be the intricate territory of specialized trade officials and lawyers.
But it is important never to forget that the objective is to enable
people who manufacture, who trade and who supply services to do so more
effectively for the benefit of all. It is vital that business leaders as
well as their counterparts in government and in the community at large
are engaged in the WTO’s work.

I have been asked to talk about the achievements of the WTO,
particularly as regards Asia, and what is at stake in the work we are
currently undertaking. This is an important subject, and while there are
some issues that dominate the headlines from time to time, there are
some others that are equally important, if not more so, that we should
not forget even though they might be less dramatic and do not make the
front pages. Occasions such as this 10th anniversary year provide a good
opportunity for us to remind ourselves.

I’m sure everyone is aware of the WTO’s role in liberalizing world trade
and I will return to this in more detail in a minute. But first, I would
like to look at an important side of the WTO’s work that is not directly
about liberalization. Views differ, but there are some people who argue
that this side of the WTO’s role is even more important than trade
liberalization. I tend to agree with them. The issue here is the
stability of the trading system and, ultimately, the international
economy. A stable environment can be as important as lowering barriers
in ensuring that trade flows smoothly and that people’s lives are not
disrupted too much. Asia’s recent experience is a vivid example.

We can look back to a time before the WTO, and its predecessor, the
General Agreement on Tariffs and Trade or GATT. In 1929, a trade war
broke out that worsened the financial crisis and deepened the
Depression. Fear, distrust and the lack of confidence meant that
governments yielded to protectionist pressures. Instead of cooperating
with each other to deal with the crisis, they competed to raise trade
barriers against each other. In January 1929 world trade stood at an
average of nearly three billion US dollars per month. By March 1933,
only barely four years later, two thirds of that had been wiped out.
World trade had slumped to less than one billion US dollars. The effect
was devastating, economically and politically. There were other causes
as well, but by the end of the decade the Second World War had broken
out.

That was before the WTO. Jump now to 1997, almost a decade ago, but I’m
sure, still vivid in many of your memories. We had a financial crisis in
East Asia. Currencies were devalued and Asian exports suddenly became
cheaper in Europe and North America. Just as in the 1920s and 1930s,
there were protectionist pressures from those who feared the cheaper
imports would deprive them of their jobs. But the trade war never broke
out. World trade dipped slightly from 5.6 trillion US dollars in 1997,
to 5.5 trillion the following year, rebounding to 5.7 trillion in 1999.
So this is the big difference. In the 1930s, before we had what we call
the multilateral trading system, two thirds of world trade was wiped
out. In the 1990s, with the system well established, less than two
percent was lost, and the recovery was much quicker.

The Asian financial crisis hit the headlines. The stabilizing effect of
the multilateral trading system, and the trust and confidence it
engendered among governments was not so visible and never hit the
headlines. But the system was successful in weathering the storm, and
provided the platform for the recovery. This is an achievement of the
trading system that has been built up over almost 60 years, which the
WTO inherited when the system was modernized 10 years ago. Does that
mean trade negotiations are less important? Far from it. It’s an
important reason why further modernization through the current Doha
negotiations is also vital.

In the same vein, we read a lot about the international trade disputes
that are brought to the WTO. We should not be misled into thinking that
this means trade conflict is increasing. Again, the test is what the
world would be like without the WTO system. The WTO actually defuses
conflict by providing a forum for negotiating and settling differences.
The negotiations establish agreements, more commonly called “rules”,
which also reduce conflict because relationships based on rules are more
predictable and manageable than those without rules. And then we have
the system, again based on rules, for settling disputes. Imagine the
chaos and conflict if all of that did not exist.

The rule of law, and peaceful and stable trading relations between WTO
Members, was one point I emphasized when I spoke about the WTO after 10
years at our recent public symposium. Two other points are relevant
particularly here in Asia. First, the great strides the WTO has taken to
become a more universal organization — China, Chinese Taipei, Nepal and
Cambodia have joined, and Viet Nam is close to joining. And secondly,
the significant efforts that have been made to integrate Asian and other
developing countries into the multilateral trading system through
technical assistance and capacity building, and through their own
increasingly active participation to ensure the negotiations serve their
interests.

And now allow me to turn to the need to further liberalize trade and the
road ahead for the WTO. What we call the Doha Development Agenda
negotiations have entered a critical phase. WTO Members want to finish
the round by the end of 2006. That means a substantial amount of work
will need to be completed by our Ministerial Conference in Hong Kong in
December this year. Central to this will be an agreement on detailed
formulas for cutting agricultural and industrial tariffs and for
trimming those agricultural subsidies that are considered harmful — a
package of what we call “modalities”. After that, the formulas with all
their flexibilities would still have to be applied to thousands of
products, and further details would still have to be worked out. In the
step-by-step approach that is essential in such complex and sensitive
negotiations, that means we need a picture of the December deal to
emerge by the end of next month, July. You might hear this described as
a “first approximation” of the Hong Kong deal.

We are only six weeks away from the end of July and an immense amount of
work remains to be done. As Chairman of the Trade Negotiations
Committee, I have warned Members that we are still well behind where we
should be, and time is not on our side. Part of this is because of a
four-month delay in the agriculture negotiations over a highly technical
issue, something called “ad valorem equivalents of non ad valorem
tariffs”. I won’t burden you with a detailed elaboration of this, but it
was an essential issue that had to be settled before Members could get
down to actually cutting tariffs. First steps towards cutting tariffs
are now underway and the momentum has increased, but as I said, time is
running out.

The picture is not entirely desperate. On a set of issues related to
agricultural export subsidies, we seem to be on target, because we
already have an agreement to eliminate them completely. Progress has
also been made in domestic support, but some difficult issues still need
to be thrashed out, even at this preliminary stage. But it is market
access in agriculture that is proving to be the most difficult subject,
with a range of complicated issues, and countries taking a range of
different positions, almost all of them represented among Asian
countries. For example, the confident exporters such as Thailand and
Malaysia seeking greater access; less confidence on the import side in
India, Indonesia and the Philippines, which want greater flexibility; a
more mixed picture from China, which reminds us that it is already
liberalizing as part of its membership agreement; and Japan, the
Republic of Korea and Chinese Taipei, which emphasize the non-trade
importance of farming (food security, environmental protection and rural
cultures).

Other areas of negotiation — industrial tariffs, services, revised
rules, and so on — are also not moving fast enough, in some cases
because there is always a temptation to wait and see what emerges in
agriculture.

A successful conclusion of the DDA negotiations will generate great
trade opportunities for all. Failure would be a setback for global
economic management and the interests of so many countries, not least
the Asian members. WTO Members are certainly committed to try to meet
the targets under the Doha agenda but in the WTO, even where there is a
will, there is not always a way. It will take skill, imagination and
compromise, plus a huge amount of effort. For my part, I am determined
to ensure that at least we have a decent package in July so that my
successor can have a chance of achieving a good deal in Hong Kong in
December. We will both need all the help we can get from all of you and
your governments.